OpenAI Renews Revenue Sharing Agreement with Microsoft, Caps at $38 Billion

The financial relationship between OpenAI and Microsoft is converging towards clearer boundaries.

According to The Information, citing sources with knowledge of the matter, OpenAI and Microsoft have set a total cap on their revenue-sharing agreement at $38 billion.

If OpenAI achieves its revenue targets on schedule, this cap is expected to be reached around the year 2028. In comparison, under the original agreement of a 20% revenue share, OpenAI's cumulative payment by 2030 could have reached as high as $135 billion.

This means that the new agreement saves OpenAI approximately $97 billion.

A more appealing long-term financial story, but with increasing short-term cash pressures

This saving is significant for OpenAI's IPO narrative. The sharing payments, as operating expenses, directly reduce free cash flow, and the setting of a cap allows OpenAI to present a clearer long-term profitability path to potential investors. OpenAI estimates it will achieve positive cash flow by 2030, with revenues expected to approach $39 billion at that time.

However, the short-term cost is equally real. Under the previous agreement, OpenAI had the option to defer some of the sharing payments until 2032, with the actual annual payment ratio being about 5% to 12% of revenue. The new agreement eliminates this deferral right, meaning OpenAI must pay Microsoft about $6 billion this year—significantly higher than the previously expected $4 billion.

The Information estimates, based on this, that OpenAI's cash burn this year will increase from the previously predicted $25 billion to about $27 billion, and from $57 billion next year to approximately $63 billion—this does not yet account for the potential revenue increase brought by recent business collaborations.

Microsoft's strategy: Certainty in exchange for long-term control

For Microsoft, giving up billions of dollars in potential sharing revenue in exchange for two important guarantees of certainty.

Firstly, the payment deadline has changed from "until AGI is achieved" to a definite end by 2030—previously, some Microsoft executives were concerned that OpenAI might declare reaching the AGI milestone at any time, at which point the sharing agreement would automatically terminate. Secondly, regardless of when AGI is declared to be achieved, Microsoft has obtained the right to resell OpenAI technology until 2032, firmly securing its position in the AI commercialization wave.

The other context of the new agreement is that OpenAI has agreed to expand its product distribution channels through Amazon and other cloud service providers, which is expected to further increase revenue, and Microsoft has correspondingly adjusted the sharing structure to accommodate this expansion.

The $97 billion savings are indeed striking, but whether OpenAI can maintain its IPO pace while accelerating cash consumption will be the market's most pressing concern next.

OpenAI has previously publicly stated that it is considering launching an IPO by the end of this year, with its current annual recurring revenue reportedly exceeding $30 billion.